Aocation of resources Flashcards
what is resource allocation?
deciding how society’s productive assets are deployed across alternative uses
define economic efficiency
making the optimum use of scarce resources
define productivity efficiency
focus on producing at the lowest cost per unit of output
when an economy can’t produce one more good without reducing output of another good
define allocative efficiency
when all goods and services are optimally distributed among buyers in an economy
explain what the price mechanism is
ways producers ad consumers interact in order to help make decisions about allocation of resources
what is the signalling function?
prices rise + fall to reflect scarcities + surpluses
if the price is high goods are scarce, if price is low goods are in surplus
what is the incentive function?
if prices rise, suppliers are encouraged to produce more with the incentive of receiving higher profits
what is the rationing function?
higher prices ration resources
most of the time, consumers will stop buying something is the price increases, thus limiting how many resources are available
define a market economy?
market forces of demand + supply allocate the resources- ‘invisible hand’
what are the characteristics of a market economy?
light touch legal system focused on protecting property rights, freedom to trade internationally, fee movement of capital + employment
what does CMA?
competition market authority
what are the advantages of a market economy?
efficient allocation of resources
competitive prices for consumers
competition drives innovation + invention
what are the disadvantages or a market economy?
some products may not be beneficial to consumers (alcohol, junk food)
define a centrally planned economy?
government coordinates, plans, and directs allocation of resources e.g. north korea, russia, cuba
advantages of a centrally planned economy?
less inequality, low unemployment, goods that will benefit society over profit
